Things You Need To Know When Refinancing Your Home

Refiancing Toronto Home

Refinancing has become quite the prominent option for homeowners over the past few years. When it comes to refinancing a mortgage, homeowners tend to go that route for an array of reasons – whether it is to get a better interest rate, or in order to consolidate debt.

Ways to Refinance a Mortgage

When it comes to refinancing costs, it can vary. Additional fees may come into play, such as the cost of a lawyer. Ultimately, it comes down to the refinancing option the homeowner chooses. Let’s take a closer look at the three most common options:

  1. Breaking Your Mortgage Contract: This method is most common when looking to receive a lower interest rate or if you need to access the home’s equity. There are penalties associated with doing this, therefore it is important to factor that into the costs associated with breaking the mortgage contract.
  2. Adding a Home Equity Line of Credit: This line of credit is available when accessing a home’s equity. This type of line of credit can be obtained through your mortgage provider.
  3. Blending and Extending The Mortgage: Most mortgage providers often allow for homeowners to increase their current mortgage balance if equity is available in the home. This allows for your current mortgage and additional borrowed funds to have a blended rate, using current market rates for the increase in loan amount, blended with your current loan and rate already in place. It is important to note that these rates are usually higher than competitive market mortgage rates, which is why it’s important to compare blended rates and the penalties of breaking your mortgage contract, as often it makes sense to pay the penalty in order to save over the long-term.

Mortgage Refinancing and Lower Interest Rates

While many factors go into determining a mortgage’s interest rate, it does not necessarily mean you’re stuck with the rate assigned to you. Homeowners can break their mortgage contract and apply for a lower interest rate, if available.

It is important to note that while this option can save homeowners money over time, this would depend on the specifics of the mortgage contract including the penalty to break it, how much term remains, and what type of mortgage product is in place. For instance, if the mortgage is a variable rate mortgage, the fee for breaking the contract is typically a 3 months interest penalty; whereas with a fixed rate mortgage, the homeowner will pay an interest rate differential penalty, or 3 months interest penalty, whichever is greater. The interest rate differential penalty is almost always greater than 3 months of interest, and quite often by as much as five times.

Mortgage Refinancing and Accessing Equity

In some cases, mortgage refinancing can allow homeowners to access some of their home’s equity, usually up to 80% with institutional lenders. Accessing this capital, homeowners have the means to accomplish whatever it is they need, whether it be a major investment opportunity, home renovations, or sending a child to University.

Refinance Your Mortgage to Consolidate Debt

Depending on your mortgage provider’s policies, homeowners may be able to consolidate their debts through refinancing their mortgage. This is usually done for high-interest debts, such as a car loan or credit card debt. This can be done provided the homeowner has enough equity in their home available to them, and if they qualify based on their current income and credit rating.

Refinancing Your Mortgage with in Toronto, Ontario

Regardless of the reason you want to refinance your mortgage, can help find the strategy that works best for your needs. We have a team of mortgage professionals that will assist you through every step of the process. Learn more about refinancing your mortgage by contacting us today.

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